The key talking points this year for transaction bankers are likely to be more varied and more positive than in previous years, when regulation has largely dominated discussion.

Regulation continues to be a major topic in the transaction banking industry, an overarching theme that hangs over almost any topic of discussion. The focus, however, has shifted toward the timetable of deadlines in 2014 and the practicalities of implementation. Conversations have moved away from debating the unintended consequences of regulation and now many industry executives are looking beyond the regulatory hurdles and discussing what else can be achieved.

At 2013’s annual gathering of transaction bankers at Sibos, The Banker asked delegates to predict what the industry would be talking about in 2014. Regulation was what sprung to most people’s minds, but the mood was more optimistic than in previous years.

“I think we’ll still be talking about regulation. Hopefully we’ll be talking about some of the benefits that have come out of the regulatory change and how it has made our industry stronger," says David Cruikshank, CEO of treasury services at BNY Mellon.

This sentiment is echoed by Chris Dunne, payment services director at VocaLink. “Regulation is always at the top of everyone’s agenda but I think the discussion will move on from how do we cope with the regulation to how do we leverage the regulation to be able to get things done to be able to make the industry move forward,” he says.

 
 
 

On to plan B

The World Payments Report 2013, published by consultancy Capgemini and Royal Bank of Scotland (RBS), notes the regional differences in the regulatory initiatives on the agenda. For example, most of the regulatory initiatives in North America are focused on transparency and customer convenience, while the regulatory agenda in Europe is dominated by the Single Euro Payments Area (SEPA), a vision of standardising payments to underpin the single market in Europe.

The end date for SEPA, which was mandated in European law for February 1, 2014, has now passed and a 'big bang' moment for seamless pan-European payments has failed to materialise. The November issue of The Banker reported on how the crunch time was approaching and many doubted that there was the capacity in the banking industry to get corporate customers compliant in time. At that time, the official line was that there was ‘no plan B’ and there was no legal alternative to the February deadline.

Pascal Augé, head of global transaction and payment services for Société Générale, was quoted as saying “we have all worked on plan B” and commented that there were discussions with regulators about granting a grace period. By January 2014, the European Commission publicly acknowledged that it was unlikely that the SEPA migration would be completed by the deadline and proposed a grace period of six months so that payments could continue on legacy systems.

This year provides a milestone in the SEPA project, a vision that has been many years in the making. Steve Everett, global head of cash management for RBS, says in his outlook for 2014 that SEPA will be a major hurdle for the industry, as will Basel III. In Europe, Basel III – in the form of the Capital Requirements Directive (CRD) IV package – will start to be implemented from the beginning of this year.

On the effects of Basel III, Mr Everett says: “Its principal impact on cash-rich corporates will be to make it even more difficult to earn a decent return in today’s low-yield environment. That’s because liquidity charges within Basel III place additional costs on banks, and therefore may further squeeze yields as banks factor these costs into their deposit pricing. In Europe, the impact could be compounded further if deflationary trends in the eurozone worsen and the European Central Bank opts for negative interest rates."

Wake-up call

The impact of the Basel III measures has been discussed at length in recent years, in particular the unintended consequences of trade finance. The trade body BAFT-IFSA has argued in recent years that the regulatory framework would affect the availability and affordability of trade finance. This, however, did not seem to dominate discussions about regulation as it has at previous industry conferences. At last year’s Sibos event in Dubai, it was not Basel III that was cited as a chief concern, but rather anti-money laundering (AML) and know-your-customer (KYC) regulations.

Although AML and KYC are regulations that banks have had to comply with for years – even before the global financial crisis – the level of anxiety about this has reached a new level, particularly in the wake of large fines that regulators have slapped on banks. In June 2012, ING was fined $619m and in December 2012 Standard Chartered was fined $667m. It was, however, HSBC’s much larger fine of $1.9bn for past AML and KYC failures that was a wake-up call for the industry, which is now even more nervous about falling foul of regulators.

Aside from discussions about more regulation, Matt Tuck, head of financial institutions at Barclays, expects that KYC will be a topic in 2014. Philip Brown, member of the executive board at Clearstream, agrees and adds that he expects that AML and KYC will be on the agenda. “I think a lot of time next year will be spent on that topic,” he says.

Ather Williams, head of global payments at Bank of America Merrill Lynch, also expects KYC and AML to be the big issues for the industry and he believes that the focus needs to be on execution. “I hope [in 2014] we’re talking about what we’ve actually accomplished,” he says.

The age of co-opetition

The complexity of regulations is a challenge for banks, particularly for smaller institutions that may not have the in-house resources to stay on top of the evolving regulations. In April 2012, the Society for Worldwide Interbank Financial Telecommunication (Swift) aimed to address this with the launch of its centralised sanctions screening service. More than 100 banks have so far signed up for the service, which aims to be a cost-effective way for them to comply with sanctions regulations.

There have also been moves for the industry to collaborate in the area of KYC compliance. In January 2014, Swift announced the creation of a KYC registry, a global service that is scheduled to go live this year. The centralised service collects and distributes standard information that is needed by banks to comply with KYC rules.

At the time of the announcement of the registry, Swift CEO Gottfried Leibbrandt said: “Compliance with financial crime regulation is one of the major challenges that banks face globally, and customers have been asking us to provide industry-wide solutions to streamline their associated processes, cut cost and reduce risk. Swift is meeting that challenge with the KYC registry, which leverages our core strengths: our community, our network, our expertise in standards and our track record of operational excellence.”

A mix of co-operation and competition – or co-opetition – is a feature of the transaction banking industry and industry observers say that partnerships will become increasingly important in the coming months. As the effects of regulation take hold, banks are having to be more selective about the business that they can and cannot do. One delegate at last year’s Sibos conference said that being a global bank that is present everywhere across the world is no longer a viable operating model, which is why the topic of partnerships is likely to take on more significance in 2014.

Cian Burke, co-head HSBC Securities Services, also comments on the topic of industry collaboration. “I think from our perspective, a lot of the changes that we are starting to see now are around organisations collaborating around non-core propositions, a lot of the back-office, middle-office service propositions. I think you will see organisations much more effectively coming together to manage shared service utilities to really drive down the cost base and the cost constraints that we are going to see in that industry,” he says.

New ground

Also at HSBC, James Emmett, the bank’s global head of trade and receivables finance, predicts that supply chains will be one of the big topics for the industry this year. “I think 2014 is going to be focused on supply chains still. I think it is going to be very much how banks interact with each other to support supply chains and how we can make sure that corporate clients of financial institutions get the liquidity they need into trade finance to ensure that we really do get the financial system operating in support of corporates and companies who need to do business internationally.”

It is expected that supply chain finance will continue to be a topic for the industry and that the large transaction banks will continue to see growth in this area. One example of a large bank making a significant move in this area was Deutsche Bank’s addition of its financial supply chain manager app to its Autobahn Apps Market in August 2013. The app means that Deutsche Bank’s clients can access a supply chain finance solution more easily through the cloud-based app.

Such solutions, which aim to unlock liquidity in the supply chain and improve the working capital and cash flow of suppliers, are expected to become more prominent at larger international banks. In a June 2013 report by advisory firm Demica, international banks reported significant growth rates – of between 30% and 40% – in supply chain finance with one respondent at a multinational bank reporting an annual growth rate of 50% over three years. Another respondent reported that their bank had witnessed an annual growth rate of 100%. The Demica report notes that eastern Europe, India and China are considered the markets with the most potential for supply chain finance solutions.

Other hot topics

Ashutosh Kumar, global head of corporate cash and trade at Standard Chartered, says that the Bank Payment Obligation (BPO) will be a big topic for the industry in 2014. The BPO carries the same benefits as a letter of credit but removes paper and manual handling from the trade settlement process. This automated settlement was first done by Standard Chartered in 2012 for one of energy firm BP’s transactions.

Since then, in mid-2013, the International Chamber of Commerce has defined uniform rules for the BPO so that buyers’ and suppliers’ banks across the world can use a standardised BPO solution. Mr Kumar said at last year's Sibos in Dubai that this was a catalyst for the industry. He added that awareness among banks about the benefits of the BPO is increasing and the next step for the industry is to convert that awareness into actual deals and propositions.

With the industry comprising a large ecosystem of various players, regulation and supply chains were not the only topics of discussion among key transaction banking players and other industry figures were quick to make other predictions for what would be key topics in 2014. Mr Kumar at Standard Chartered says that he expects more interest in Africa. Meanwhile Patrick Colle, CEO of BNP Paribas Securities Services, predicts that Japan will become more significant in the global economy in 2014.

Aside from the focus on different regions in the world, other participants are focusing on topics that have not been prominent at industry events in the past. Ann Cairns, president of international markets at MasterCard, says: “At Sibos 2013 we just started talking about financial inclusion and [in 2014] I think that’s going to be an even bigger topic on the agenda.”

This, as well as the continued discussions on regulation, will likely be discussed in the coming months and when the industry gathers again at the Sibos conference, which will be held this year in late September in Boston.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter